France gets biggest share of CAP budget

No great surprise but France got the largest share of CAP spending among member states in the 2009 financial year. France received €9.87bn, 17 per cent of the total budget of €56.781bn. Spain took second place with €7.26bn, followed by Germany on €6.9bn, Italy on €6.08bn and the UK on €4.04bn.

Poland headed the accession states on €3.72bn, followed by Greece on €3.05bn and Romania in €2.1bn (70 per cent from Pillar 2). Malta was bottom of the pile with €14.88m, most of it from Pillar 2 funds. The combined payments to the Baltic states of Estonia, Latvia and Lithuania amounted to €324m. The importance of the CAP to Ireland was illustrated by its receipts of €1,655.55m.

Budget DG warns of big CAP cuts

A spokesman for the Budget DG has warned of big cuts in the CAP budget given the financial situation of the EU: Cuts

The CAP share of the EU budget is already expected to decline from 45 per cent to 39 per cent by 2013, but it may need to be cut back even further.

Of course, such declarations of intent by the Budget DG are always heard ahead of new financial negotiations. In practice, the politics of interrelationships between member states often prevails so that the cuts are less extensive than anticipated.

Ideas from the NFU

After a long delay, I am returning to the NFU paper on 'The CAP after 2013', this time looking at some of their policy ideas. What guides their thinking is something I would agree with, the need 'to facilitate the creation of fairer and better functioning agricultural markets so that ultimately farmers can become less reliant on public support'.

There is no doubt that power has moved down the food chain to retailers to an extent that there is an imbalance in the market. The NFU note that 'most supply contracts are one-sided, conferring significant and undue power to purchasers.' The challenge is how to tackle this monopsony and the NFU suggests a legally enforceable code of conduct that would prevent abusive practices such as slotting fees. This is fine in principle, but the devil is in the detail given the complex distribution of responsibility between the EU and member states.

The NFU also suggests that more work should be undertaken on agricultural futures markets, including the prospects for their extension to a wider range of agricultural sectors. As they point out 'their availability is sparse in many sectors, which inhibits long-term price discovery.'

The NFU also draws attention to the need for more spending on applied science so that the sector can produce more but do so sustainably so that there is les impact on the environment. They suggest that the CAP could play a complementary role in supporting research and development, perhaps through a third pillar. The research infrastucture is an area where government has a legitimate and important role and it has been sadly neglected in recent years.

What is more open to question is the suggestion that Second Pillar programmes should be redefined to focus on agricultural rather than rural development. They are correct in arguing that 'There is a danger in seeing Pillar Two as a dumping ground for policy aspirations in different areas without providing the necessary funding'. However, the future of rural economies should be diversified and not overly dependent on agriculture.

Taken as a whole, the paper is a balanced contribution to the debate which has a number of constructive suggestions to make, although there is too great an emphasis on subsidies and protection for my taste.

Insurance back on the agenda

European farm commissioner Dacian Ciolos is considering plans for a publicly-funded insurance scheme for farmers' incomes. His view is that it is needed to give a minimum income to farmers after the disapperance of most market support mechanisms.

An alternative view would be that either these farmers would be better off exiting the industry or they should be funded by income support schemes for the least well off, although admittedly these vary substantially as they are a member state matter.

Economists tend to favour insurance schemes and consider that not enough has been done to promote them in the debate in the UK about cost and responsibility sharing in animal health. The difficulty in practice is that the pool is not big enough or lucrative enough to interest insurance companies.

You are then back to state subsidies, albeit delivered by a possibly more efficient policy instrument. EU farmers' group Copa-Cogeca states that average incomes in agriculture were about 50 per cent less than those in other sectors, with two-thirds of farmers' income coming from direct payments from the CAP.

An original objective of the CAP was to narrow the gap between urban and rural incomes and this has never been achieved as far as farmers are concerned. This suggests that for some people farming is simply not a viable activity, at least as a full-time occupation. If one considers that one needs people to remain in remoter areas, a subsidy should be paid specifically for that.

What one really wants is a more diverse rural economy and in the UK, and I suspect elesewhere, the absence of rural broadbrand or a service that is slow (as on the Isles of Scilly) is a real constraint.

A friend runs an agriculturally related consultancy business in a rural area. Recently her provider said that it could no longer offer a broadband service. There are mechanisms to complain, but it will all take too long. She is going to have to move. Action on infrastructure of this kind would help rural areas more than additional payments to farmers.

Scottish Government cracks down on sofa farmers

The Scottish Government is planning to crack down on so-called 'sofa' or 'slipper' farmers who use barren hillsides to claim Single Farm Payments. This proposal follows the short-term recommendations of the Pack Inquiry into Future Support for Agriculture in Scotland.

The proposals do not require EU approval and could be put in place by January. Minimum stocking rates would be established and farms that fell below them would find an inspector calling. They would then have 60 days to put things right. The Scottish NFU endorsed the plan as the best way forward.

It is also hoped that Scotland will secure a devolved animal health budget by next April which should help a number of innovations in policy that the Scottish Government has been pursuing in this area. Their policy experiments could provide lessons for the rest of the UK, although the fact that the UK is a single epidemiological unit poses some challenges.

Productionist move at Defra

Rural development programmes should place more emphasis on competitive agriculture and less on environmental considerations, according to new farm minister Jim Paice:
Rural development

In some respects this may be seen as a return to a MAFF-style productionism at Defra, even if the name of the department has not (yet) changed. However, it is often forgotten that there are three dimensions to sustainability: economic, social and environmental. What the balance should be between these is a matter for debate.

The biggest challenge facing Defra is the budget cuts that are going to hit it given the ring fencing of the NHS and lower than average cuts that are likely in defence and education. If it wasn't for coalition politics, one might wonder why Energy and Climate Change needs to be a separate ministry.

Disclosure of subsidies may end

Transparency in the CAP may be reduced with a ruling which suggests that EU rules which require member states to publish details of payments to individual farmers may be invalid. An opinion by an ECJ Advocate General is often indicative of the view that the Court itself may take. German farmers had challenged the rules on the grounds that they were an invasion of their privacy.

Advocate General Elinor Sharpston said that the rules were disproportionate and that there were discrepancies in the reasons the European Commission and the European Council had given for needing the legislation. The assumption that farmers consented to disclosure when they applied for subsidies was also open to question on the grounds of whether it was explicit enough.

Reform advocates have used the information to draw attention to the very large sums of money paid under the CAP to big landowners or to food processing companies making use of export subsdies. Farmers' organisations argued that members of the public often confused Single Farm Payments with profits.

How many members of the public have been interested is open to question. The information is not that readily digestible and is not equally available for all member states (in the UK it can be found on the Defra web site). However, when I have looked at information relating to farms in areas I am familiar with (admittedly not a representative sample) I have been surprised by how relatively low the payments have been. They would be higher, however, in areas like East Anglia and Lincolnshire.

Depending on the nature of the final ECJ ruling, the Commission may have to redraft the rules rather than scrap them altogether.

What's wrong with the CAP

A polemical attack on the CAP using data from farmsubsidy.org which nevertheless admits that the chances of real reform are slim: CAP

CAP consultation draws a big crowd

The consultation on the future of the CAP has been so popular that the deadline has been extended: Deadline

3,700 responses have been received, although that is not so many when one considers the size of the EU. I also wonder how many of them were from ordinary citizens or consumers and how many from special interests that derive benefits from the policy?

I am rather sceptical about such consultations as I think that they rarely change the minds of decision-makers who pick out those responses that suit their thinking. But I wouldn't want to discourage anyone from responding.

How the NFU sees the challenges

After some delay, I am returning to the NFU paper on 'The CAP after 2013.' I would agree with their basic definition of the challenges facing farming: 'Put simply, farmers across the world will be required to produce considerably more food, from finite and precious resources, amid a changing climate and at the same time impacting less on the environment.'

The NFU specifies the benefits of the CAP in the following terms:
1. European consumers expect food that is produced to exacting environmental and welfare standards. These lead to higher regulatory costs which do not always apply to third country imports. The CAP is a form of compensation for these costs.
2. The CAP plays a key role in the EU's long-term food security.
3. There is a territorial cohesion role in terms of allowing farming activity to be spread throughout the EU. It also underpins rural employment [only in some, generally more remote locations in my view].
4. The policy helps to ensure that agricultural production is environmentally sustainable and helps to maintain some of our most important landscapes and environments. [This is essentially an argument for the second pillar].

But perhaps the real point is that 'Fundamentally, the CAP helps to address the failure of agricultural markets to develop fair and profitable returns to farmers.' What constitutes a 'fair' return is a moot point, but in my view farmers have experienced what I would regard as anti-competitive behaviour by supermarkets, especially in the UK. The solutions, however, reside in more effective use of competition policy (more on this in a later post].

Arguments (1) and (2) are really those that underpin the SFP. However, the actual costs imposed on (1) fall far short of present SFP payments. (2) is more difficult to quantify, particular given the uncertainties associated with climate change, but there are grounds for taking an 'insurance' payment against this.

Without the SFP, many farms would cease production. This would probably hit public benefits more than food production given that it is the most marginal farms that would cease production. What this points to (in the absence of an acceptable bond scheme) is a SFP at a reduced rate.

The French perspective: the new French food law

Recently I had the opportunity to talk to some French agriculture and food policy advisers. This was very informative in the sense of understanding where we differ. The French stance on these matters is a product of their own values which in turn reflect their historical development. One has to understand their stance, even if one does not agree with it.

One topic was the new French law on the 'modernisation' of agriculture which I understand has reached the Senate. I think our understanding of modernisation is somewhat different from the French one. There appear to be three broad objectives: creating a public policy for food; stabilising and re-regulating the agricultural market; and ensuring food security.

Apparently, there is a view in France that there is need to combat new food behaviours. From an English perspective, I would say that this was no concern of the Government, but again this reflects the difference between a liberal and an étatiste tradition.

France was once the country of the one hour lunch: indeed it was not unknown for some lunches to extend more than hour and be washed down with more than a glass of 'vin ordinaire'. However, the view is that France has moved away from having a fixed eating time and young people are turning to fast food. This is thought to be not good for public health, but above all it is believed that restoring traditional behaviour would open the market for agricultural products.

France would also like to strengthen corporatist associations of producers, but admits this would require competition law changes at EU level. A somewhat more sensible idea is to seek longer-term contracts between farmers and the hypermarkets.

However, some of the goals sound a little strange to English ears. Preserving the food heritage is one. Now, whilst I do not share the English middle class love affair with France, I would admit there is something special about a Parisian café. But does this require government intervention?

The policy also seeks to rely on educated citizens, that is educated about food and that objective would certainly resonate with many in England. However, the notion of keeping competitive enterprises on all parts of the territory is a less comfortable one, even if one admits that many parts of France are thinly populated and at risk of depopulation. (Whether depopulation is necessarily a bad thing is itself an interesting question).

A British participant in our discussions argued that the structure of dirigisme facilitated collusion and was essentially anti-competitive. Were the objectives coherent and did they try to cut across the expressed preferences of the French people? The attempt to stabilise might be an attempt to immoblise.

Not surprisingly, this was seen as a rather polemical point on the French side. They explained, that their policy was not economically rational, but was a [normative] choice. The production of food had a very strong public good component and belonged to public policy. However, it was admitted that French consumers had a very limited role in food policy formation.

More from our discussions at a later date.

Ag econ folks give it large to SFP

The intention of the European Commission to retain the SFP as the centre piece of the CAP after 2013 is a fundamental error according to leading agricultural economists. In a paper by David Harvey and colleagues to the Agricultural Economics Society conference in Edinburgh, it was argued that direct farm payments should be phased out.

The very idea of general direct payments was said to be unjustifiable. Payments should be reoriented from payments that are still historically linked to production-based payments and towards the guarantee of food supplies, rural economic development and protection of the environment.

The ag ecnomists argue that the overall agricultural policy problem for the EU is the preoccupation with farm incomes which dates back to the formation of the CAP in the 1950s. The bulk of an expanding budget is still spent on that objective. Despite this expenditure, average farm incomes remain below the national average income in almost all member states (which, of course, could be seized on as an argument for not making things worse by removing farm support). The economists argue that whatever governments do, they are not going to substantially improve the incomes of the less efficient and marginal farm holders.

The economists note that these payments were originally meant to be transitional. Of course, following Mancur Olson, the politics of subsidies which have concentrated effects but diffuse costs means that they are often converted from temporary to permanent payments.

Harvey revives the idea of a bond scheme to buy out these payments as first suggested by Professor John Marsh more than twenty years ago and subsequently developed by Alan Swinbank and his colleagues. Uncertainty for farmers would be reduced and they would have time to adjust to liberalised markets.

I have always found such a scheme attractive in principle, but the Commission view is that it is not compatible with cross-compliance.

Cows account for 4 per cent of greenhouse gases

The urgent need for a stronger climate change dimension to the CAP is emphasised by a report from the Food and Agriculture Organisation (FAO) which is a UN agnecy. If one takes account of everything from nomadic herds to processing plants, milk production accounts for 2.7 per cent of global greenhouse gas emissions. This rises to 4 per cent when meat processed from the dairy industry is added in.

Methane contributes most to the global warming impact of milk, accounting for 54 per cent of emissions. Nitrous oxide accounts for 27 per cent of emissions in developing countrues and 38 per cent in developing countries.

You can find the full report here: FAO

Spel(l)ing it out

New Defra supremo Caroline Spelman went down well at her first Farm Council as she has a fluent command of French and German which facilitated informal discussions with ministers. She has built up informal links with German agriculture minister Isle Aigner on the issue of lighter regulation and is planning a bilateral meeting with French minister Bruno le Maire.

She is taking a relatively reformist stance on CAP, noting that there are four constituencies to be satisfied. She told Farmers Weekly 'Farmers need a good deal from CAP reform. So, too, do consumers, taxpayers and the environment. It is a four-pronged approach to how we reform the CAP.'

Rumours have been circulating that Defra will be abolished or rebadged and substantially restructured. However, the minister said: 'I am not a huge fan of big structural change. In my experience, messing around with structures can end up costing money as well as saving money. It is not my top priority.'

Reading the farming press one gets the sense that farmers have realised that it is not bonanza time, particularly given the fiscal constraints. Cost and responsibility sharing on animal health is still very much on the agenda and the commitment on a bovine TB cull is very qualified.

All four Defra ministers have strong farming connections which is how the Conservatives tend to recruit their ministers and there are no Lib Dems in the department, somewhat surprising given their rural focus. However, this is not necessarily a MAFF (Ministry of Agriculture) in all but name. As far as CAP reform is concerned, the personnel may have changed, but British interests in value for money have not. Indeed, they are likely to be emphasised even more.

Investors pile into farmland

As Britain's Con-Lib government threatens a big hike in capital gains tax, investors are piling into farms despite the fact that a typical yield on capital in the sector is only 2 per cent (although that is more than you would receive from many deposit accounts).

According to Strutt and Parker farmland in the UK has risen in price from an average of £5,260 per acre at the beginning of the year to £6,233 this month, an increase of 18 per cent. Prices have already topped those achieved when the market peak in 2006, but annual growth of about 5 to 6 per cent until 2015 is still expected.

Farmland has always been seen as a safe haven at a time of economic volatility, a kind of gold with cashflow. There are also capital gains and tax benefits. Agricultural property relief means that all of the land, as well as a portion of the farmhouse, is exempt from inheritance tax after two years, provided the owner farms the land or has a farming contract in place based on shared profit. You can also offset farm losses against other income.

The problem is that it is difficult to get a foothold in farming unless you inherit or become a farm manager. Tenancies don't come up that often and local authority estates which were a traditional entry route are being sold off. In any case, many of these units were not viable without an off farm income, although that is also true of many owned and tenanted farms.

The farm population is an ageing one and the industry needs younger people to come in other than through the inheritance route, valuable though that is in providing a sense of 'trusteeship' of the land. When my nephew takes over from his dad, he will be the eighth generation to farm in a very beautiful part of Cymru, although three formerly separate farms have now been combined into one big property.

Lobbying links

Questions are being raised in some quarters about links Defra secretary of state Carloline Spelman has had with the lobbying industry. Of course, it is not unknown for politicians in opposition to have such links or to undertake business roles and Defra has made it clear that everything will be done in compliance with the ministerial code. Read more here: Lobbying

Productionist emphasis at Defra

The productionist emphasis at Defra continues with junior ministerial appointments: Defra . Jim Paice, the Minister of State, was substantially involved in the Young Farmers' movement and has been connected with farming all his life. The 'Pussy', Richard Benyon, is MP for Newbury and is stated to be a local farmer. (As it so happens, I had lunch in the constituency on Sunday and my enquiries suggest that he is more a country landowner than a farmer, not that there is anything wrong that: they often tend to have stronger conservationist instincts).

However, Lord Taylor of Holbeach has not become the Lords minister as expected, the post going to Lord Henley.

The ministerial team would thus be an all Conservative one. However, I am uncertain what is happening to the fisheries portfolio and there were rumours that this was destined to be occupied by the Lib Dem MP for the west of Cornwall and the Scilly Isles, Andrew George.

Sweet appointment at Defra

Caroline Spelman is the new secretary of state for Environment, Food and Rural Affairs. As it so happens, I was with some Defra civil servants yesterday and they were intrigued about what the outcome might be.

Nick Herbert was the shadow spokesperson, but I was not greatly impressed by some of his comments: indeed, I even thought of writing to him and offering some advice! There was speculation that a Lib Dem might get the post and it has been suggested that one of the junior posts in the department will go to the Lib Dems.

Caroline Spelman has a background with big sugar. She worked for the British Sugar Corporation and held the sugar commodities post at NFU. She also worked for the International Federation of Beet Growers in Paris. I have had some dealings with big sugar myself and I know they are serious players.

Her appointment will no doubt be welcomed by the barley barons in East Anglia and the NFU. Farmers felt that Defra until Labour had become the Department for the Elimination of Farming and Rural Activity. I do think that there are some issues on which they have legitimate grievances, for example the failures of the Rural Payments Agency and policy paralysis on bovine TB.

Nevertheless, I would appeal to the new ministerial team not to shift policy too far in a productionist direction and neglect environmental considerations. A good record on the environment is ultimately important for the relationship between the farmer and the consumer.

I know that many individual farmers undertake excellent initiatives on conservation and environmental protection. The typical farmer still has a real dedication to his calling and sees himself or herself as a 'trustee' of their farm. This is not always sufficiently acknowledged. But it does need a supportive policy framework to sustain it.

NFU sets out ideas on CAP debate

The National Farmers' Union has published a major policy document setting out their ideas on the future of the CAP: NFU

The NFU has been working on this policy statement for some time and as one would expect it is a strategically oriented and sophisticated analysis. Clearly it takes account of the perspectives of farmers, but it is also politically realistic in terms of what can be achieved.

I don't agree with everything that is contained in the document, but it also contains a number of sensible and well thought through suggestions that provide a positive contribution to what is a very important debate.

As time allows over the next few weeks, I will through the document highlighting some of the major elements of the analysis provided and suggesting points of agreement and difference.

The future of the CAP

Interesting and informative article in The Economist looking at the future of the CAP: CAP